Bloomberg/Phil Weymouthby Kudakwashe Muzoriwa
S&P Global Ratings has revised Bahrain’s outlook from stable to positive, adding that a further strengthening of foreign exchange reserves, coupled with a slowdown in foreign exchange usage triggered by an improvement in the current account, could also support an upgrade.
The rating agency also projected the Kingdom’s fiscal deficit to reach 4.2 per cent of GDP by 2022, compared with an average of 12 per cent between 2015 and 2017.
The positive outlook primarily indicates that we expect the government to implement further reforms to keep fiscal deficits on a decreasing trajectory, said S&P.
Bahrain’s budget consolidation is supported by the implementation of two pillars of the Kingdom’s fiscal reform plan—the introduction of a value-added tax (VAT) and a voluntary retirement programme.
S&P Global expects Bahrain’s further budgetary consolidation measures to lead to lower budget deficits than currently forecasted if the government continues to strengthen its reform momentum following the successful implementation of VAT and the reduction of the public sector workforce by around 18 per cent.
The government's debt stock is expected to grow partly from concessional lending by other GCC sovereigns, of which $3.7 billion of the pledged $10 billion in support has been received. S&P expects the remainder of this amount to be available over the coming years, without conditions.
The lending from Bahrain’s oil-rich Gulf allies has a grace period of seven years and an interest rate of zero, thus helping to reduce the government's average cost of interest and further supporting budgetary consolidation.
“We expect the government to reach a primary surplus by 2022,” said S&P.